Rules flouted to aid Mukesh Ambani's Reliance Jio : CAG

DoT  rules  flouted to aid Reliance Jio : CAG

‘The Pioneer” -  January 20,  2014 | J Gopikrishnan | New Delhi

After the exposé on irregularities in the KG Basin, the Comptroller and Auditor-General of India (CAG) has found blatant violations of Department of Telecommunications (DoT) rules and favouritism in the manner the Mukesh Ambani-led Reliance Group was allowed entry into the telecom sector. The CAG has raised several uncomfortable questions about the favouritism shown to Reliance Jio during the audit of 3G / Broadband Wireless Access auction.

The CAG’s recent findings and questionnaires to DoT detail the way the Government provided a backdoor entry to Mukesh Ambani’s company in the telecom sector in 2010. The apex auditor also claimed that favouritism was shown to the company that led to possible loss of more than Rs 20,000-crore to the exchequer during 2011-13.  The CAG also blamed DoT for providing monopoly to Reliance Jio in the broadband and 4G sector by withdrawing State-owned companies BSNL and MTNL.

The DoT has not yet answered the CAG’s queries on violations.  Documents available with The Pioneer show that auction for Broadband Wireless Access (BWA) Spectrum was stage-managed to give backdoor entry to Reliance Jio.

The CAG in its preliminary findings said, “a small company” Infotel Broadband Services Private Limited (IBSPL) was given approval to take part in the auction in mid-2010 without meeting the net worth limit and allowed to bid for more than Rs 12,750-crore.

The small company, with a turnover of just Rs 16 lakh and a single subscriber, had only Rs 3-crore authorised capital during auction. “The DoT did,  however, neither seek the sources of funding for furnishing the EMD (Earnest Money Deposit) of Rs 252-crore (1,500 times the company’s annual turnover or 100 times the paid-up capital of the company) in March 2010, at the time of application for the BWA spectrum,” said the CAG’s preliminary findings, seeking response from the DoT.

The IBSPL won the auction in all circles of India. Within hours of winning the auction, the subsidiary of Reliance Industries Limited (RIL) was allowed to take over 95 per cent of the shares of the small company. The takeover deal was worth Rs 6,000-crore. In the preliminary findings, the auditors say this deal created a windfall of more than Rs 4,800-crore to the IBSPL, which became the RIL’s subsidiary.

The auditors blamed the DoT for violating the mandatory lock-in period of three years, which bars acquisitions and mergers in the telecom sector. “A non-participant company exploited the loophole left by DoT officials in the eligibility criterion for obtaining BWA spectrum by acquiring a winning company without participating in the auction process, within hours of closure of the auction process, thereby vitiating the sanctity of the auction process,” said CAG.

The four-page communication to DoT, signed by Senior Audit Officer Rajendra Kumar, details the RIL’s surrogate takeover plans of the small company during March-June 2010. The auditors also blamed DoT for allowing Reliance Jio to obtain voice service facility while paying only for the BWA Spectrum, which is widely termed as 4G in the Indian telecom sector.

According to CAG auditors, Reliance Jio only paid Rs 12,750-crore for getting broadband operations across India. But later the DoT granted voice facility also without charging any extra money. According to the questionnaire sent to DoT, the auditors pointed out that for the similar voice service facility, the 3G auction winners paid more than Rs 33,000-crore for operating in all circles in India during the same period. Sources in CAG indicated that apart from favouritism, this move of DoT created a clear loss of Rs 20,000-crore to the public exchequer.  

After Reliance Jio’s entry, the State-run BSNL and MTNL withdrew from the broadband sector. These PSUs were also granted BWA spectrum. The Union Cabinet recently approved the reimbursement of money to BSNL and MTNL. In its communication to DoT, CAG said this move will leave “virtually the entire field to a company that had not participated in the auction process.”

Questioning the withdrawal of State-run companies, CAG officials indicated this was a clear move to provide monopoly in broadband sector to the Mukesh Ambani-led Reliance Jio.  

[This report was published in "The Pioneer" on Jan 20, 2014]